By Praveen Paramasivam and Anisha Ajith
CHENNAI/BENGALURU (Reuters) – A nascent revival in rural demand is likely to prop profits at Indian consumer goods companies in the March quarter, as improving income and credit disbursal allow buyers to spend more on branded oils, tea, snacks and soaps.
Cinthol soap-maker Godrej Consumer Products Ltd and Parachute oil manufacturer Marico Ltd are set to improve their earnings the most in two years when they report results for the fiscal fourth quarter, according to Refinitiv data.
Graphic: Rural recovery to help drive FMCG earnings- https://www.reuters.com/graphics/INDIA-CONSUMER%20GOODS/myvmokeebvr/chart.png
Hajmola-maker Dabur India Ltd’s profit is expected to grow 35% – the highest in at least 16 quarters – during the same period, according Refinitiv.
Rural consumers – hit especially hard in the aftermath of the pandemic – typically make up about two-thirds of consumer goods companies’ sales, according to Bengaluru, Karnataka-based Bizom, which tracks retail industry trends.
A pick-up in demand in this key market is seen as a reflection of improving trends in the economy, which is still battling high inflation.
“It is likely that rural slowdown is bottoming out,” Sanjiv Mehta, managing director of Hindustan Unilever Ltd, which sells Dove soaps, said last month at a post-earnings conference call.
While analysts and executives did not break up how much rural sales would improve as against the more steady urban demand, they agreed that companies would see finances improve as consumers in small towns and villages traded up to higher margin name brands.
Depressed rural demand led to an upto 4.1% drop in quarterly sales volumes at consumer goods companies over the last five quarters, shaving off millions of rupees from their top-line, industry reports have estimated.
Cash strapped rural buyers traded more costly snacks and personal care brands for local alternatives sold at mom-and-pop stores, if not foregoing some purchases altogether.
“A reversal (from unbranded to branded) is going to happen, driven by increase in rural income, because people want brands,” Marico Managing Director Saugata Gupta said earlier this month.
Graphic: India’s consumer goods majors to see sales improve- https://www.reuters.com/graphics/INDIA-CONSUMER%20GOODS/egvbyaddkpq/chart.png
With these initial trends, Little Hearts biscuits maker Britannia Industries Ltd and Maggi noodles seller Nestle India Ltd , which have been expanding their rural distribution, stand to grab a bigger share of consumer spend, analysts have said.
“We have now 28,000 rural distributors versus 26,000 in March 2022,” Britannia Managing Director Varun Berry said after the biscuits giant reported quarterly profit that more than doubled.
To be sure, a full recovery of rural demand would likely take two or three more quarters, experts added.
“From a real bad period in June, July, we have definitely seen improvement,” Unilever’s Mehta said, but added: “We are not jumping to the conclusion that everything is hunky-dory.”
(Reporting by Praveen Paramasivam in Chennai and Anisha Ajith in Bengaluru; Editing by Nivedita Bhattacharjee)
